Foreign investors are highly confident about India's growth potential, said a high-end official from global ratings agency Fitch, adding that more of the investments will start coming-in post general elections in 2014.
Despite a gloomy global financial scenario, foreign institutional investors (FIIs) are betting big on Indian capital markets, wherein they pumped in about US$ 25 billion in 2012. Over the past 15 years, the Indian markets have received almost a fifth of all FII equity flows to emerging markets while the country attracted almost half of all FII equity flows to Asia ex-Japan, China and Malaysia, in 2012.
Market experts believe that the recent reform initiatives undertaken by the Government, lack of investment options in other countries and overall a positive investor sentiment are certain factors that have made India attract the highest amount of foreign inflows as against its Asian peers.
Government Initiatives
The Government keeps introducing measures that would be instrumental in attracting foreign investors towards Indian markets. In its latest attempt to woo international investors, the Government has simplified the process of removal of norms for FIIs to invest in government and corporate bonds. In the newly devised streamlined procedure, the Government, SEBI and the RBI have decided to remove sub-limits for FIIs within the overall cap for bonds.
From now on, there will only be two ceilings - a US$ 25 billion limit for investment in government securities that has been formed by merging G-secs (old) and G-secs (long -term). In addition, there will be a US$ 51 billion sub-limit for corporate bonds that will include the existing one for FIIs (US$ 25 billion), qualified foreign investors (QFIs) (US$ 1 billion) and US$ 25 billion for FIIs in long term infrastructure bonds.
Road Ahead
Market analysts believe that Indian stocks may touch new highs in 2013, as the market sentiments in the US and Europe are still dismal. Higher-than-expected cuts in policy rates by the RBI and surprises in companies' earnings could potentially drive more FIIs in India.
Experts also believe that India has fared really well over the past few years and the similar macroeconomic trends would continue in 2013. Steady FII equity flows that enhance stock valuations, a strong investment cycle, and steady consumption growth (especially at low-income levels) would be the factors that would propel the Indian markets. Moreover, portfolio fund flows are anticipated to be higher in 2013 than those in 2012, on the back of Government reforms like passing bills that would spur foreign investment limits in insurance, having a uniform goods and services tax, and reconciling subsidies.
Exchange Rate Used: INR 1 = US$ 0.01823 as on April 5, 2013
References: Media Reports, Press Releases.